[Federal Register Volume 61, Number 140 (Friday, July 19, 1996)]
[Notices]
[Pages 37782-37783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18295]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37429; File No. SR-Amex-96-26]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by American Stock Exchange, Inc. 
Relating to the Unbundling of Auto-Ex Orders

July 12, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), and Rule 19b-4 thereunder, 17 CFR 
240.19b-4, notice is hereby given that on July 11, 1996, the American 
Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the 
Securities and Exchange Commission the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Amex. The Commission is publishing this notice to solicit 
comments on the proposed rule change form interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt new Amex Rule 933 to prohibit the 
unbundling of customer option orders in order to make them eligible for 
entry into the Exchange's Automatic Execution System (``Auto-Ex''). The 
text of the proposed rule change is available at the Office of the 
Secretary, Amex and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Amex included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Amex has prepared summaries, set forth in sections 
A, B, and C below, of the most significant aspects of such statements.

a. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed rule Change

(1) Purpose
    The Exchange proposes to adopt new Amex Rule 933 which is designed 
to prohibit the unbundling (splitting up or dividing up) of customer 
option orders in order to make them eligible to fit the size parameters 
of the Exchange's Auto-Ex system, an automatic execution system 
intended for small orders of customers. The Exchange believes that 
Auto-Ex should give near instantaneous single price execution of such 
orders at prevailing bid/offer prices. Currently, the size parameters 
for customer Auto-Ex orders are generally 10 contracts for equity 
options with larger amounts available for certain index options.
    Automatic execution systems were introduced more than 10 years ago 
by the Amex and other option exchanges in response to member firm 
suggestions that customers would be helped in gaining confidence in the 
listed options markets if quick, single price executions at posted 
(prevailing) prices were available. The Amex initiated Auto-Ex in 
certain index options in the mid-1980s and later extended its 
applicability to equity options.
    Over the past several years, due in large part to enhancements in 
technology and market minding systems, more customers and other market 
participants have obtained the ability to use a combination of high 
speed automated market watch systems and computer generated orders to 
enter orders directly or indirectly into the automatic execution 
systems of options exchanges. In order to fit within the size 
parameters of such systems, large size orders are frequently spilt up 
into small size orders which give rise to a series of sequential (or 
near sequential) orders being entered.
    For example, a member with a customer order to buy 20 contracts at 
the prevailing market price in an Auto-Ex eligible equity option, could 
structure the order so it is split up and transmitted as two orders to 
buy 10 contracts each. The Exchange believes that such unbundling 
compromises the basic purpose for which automatic execution systems 
were adopted.

[[Page 37783]]

Accordingly, the Exchange now proposes to adopt new Rule 933 (Automatic 
Execution of Options Orders) that would prohibit the unbundling of 
customer option orders in order to make them eligible for entry into 
the Exchange's Auto-Ex system.
    The adoption of this rule would be consistent with similar rules 
already in force at the Chicago Board Options Exchange and the Pacific 
and Philadelphia Stock Exchanges.\1\ Further, the adoption of this rule 
will not affect a member firm's ability to directly route large size 
customer option orders (that is, orders in excess of Auto-Ex size 
parameters) to the trading floor as such firms can choose to either (i) 
use the Exchange's electronic order routing AMOS system which will 
cause the order (for up to 30 contracts in the case of equity options) 
to appear on an AUTO-AMOS display terminal where it is then subject to 
execution, or (ii) route the order (without any size limitation) 
through the firm's own order delivery system for execution by a floor 
broker.
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    \1\ See CBOE Rule 6.8(a)(i); PSE Rule 6.87(c); and Phlx Rule 
1015(vii).
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(2) Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
in general and furthers the objectives of Section 6(b)5 in particular 
in that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers or dealers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will impose no burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
(3) was provided to the Commission for its review at least five days 
prior to the filing date; and (4) does not become operative for 30 days 
from July 11, 1996, the date on which it was filed, the rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 
19b-4(e)(6) thereunder.\2\ In particular, the Commission believes the 
proposal qualifies as a ``noncontroversial filing'' in that the 
proposed standards do not significantly affect the protection of 
investors or the public interest and do not impose any significant 
burden on competition. At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in the furtherance of the purposes of the Act.
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    \2\ 17 CFR 240.19b-4(e)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of the Amex. All 
submissions should refer to File No. SR-Amex-96-26 and should be 
submitted by August 9, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\3\
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    \3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18295 Filed 7-18-96; 8:45 am]
BILLING CODE 8010-01-M